Results First take: FY2021 earnings results below market expectation due to lower than expected GP margin
FY21 results Highlights (YoY):
- Turnover: HK$32.5bn, up 25.7%
- Gross profit: HK$5.7bn, down 0.8%
- Gross margin: 17.5% from 22.2%
- Net profit: HK$3.3bn, down 11.0%
- Net profit per ton: est. HK$513, down 8.4%
- Final DPS: HK11 cents, with 36% payout ratio (2020: HK18 cents with 37% payout)
Our view
- LMP’s share price has dropped 34.5% since Sep 2021 following movement of the drop of domestic wastepaper price
- A lower net profit was expected by the market but magnitude of the earnings drop was not.
- As the demand slowed amid slower economic activities, LMP’s ASP hike was not able to match the rising energy prices and intensifying inflationary pressures in 2H2021
- There is no near term catalyst as the paper industry is moving into low season in 1H2022
- As per our economists anticipate further cut in interest rate in China, we see the current government stimulus measures to help boost the economy will be a mid-long term positive catalyst to the company
- The company is trading at 4.6x FY22F PE, which is below -1std of its four years average. It is also close to the previous low in July 2020 and we reckon the negatives are mostly priced in.
- We currently recommend BUY with TP under review.